Date: Mar 30TH, 2022

Should You Designate Beneficiaries on Your Financial Accounts?

The designation of beneficiaries is an often-overlooked task by many people. If you have a will, you may think you don’t need to make any beneficiary designations. But there are important reasons why you shouldn’t skip this step. 

The beneficiaries you name on your financial accounts supersede the heirs you have named in your will or other estate-planning documents. For that reason, all financial accounts should have beneficiaries named. If you haven’t revisited the beneficiary designation process on your accounts in a long time, now is the time to do so. 

Don’t Leave Your Accounts to the Mercy of Probate

One reason to be sure you’ve designated beneficiaries on your account is that it allows your assets to transfer outside of probate, which is a court process that is both time-consuming and expensive. Unless a beneficiary is named, any money in your accounts will become part of your estate after you’re deceased and would therefore become subject to probate. In many states, even a simple probate process could extend from six months to a year. If there are any complications with the estate, it could be longer. 

Reviewing and designating your beneficiaries now can save family and friends from the stress of navigating legal proceedings while they’re grieving. It also means that your beneficiaries will have cash available to then to pay for the expenses that follow, such as funeral costs, legal advice, and the probate process itself. 

Life Circumstances May Have Changed

If you made your beneficiary designations a long time ago, it’s possible that your reasons for choosing those beneficiaries have changed. Life events such as divorces/separations, marriages, births, deaths in the family, and shifting relationships may have made you rethink your beneficiaries. In some cases, you may not even remember who your beneficiaries are on your accounts. 

For example, if you leave everything to your children in your will, but your ex-spouse is listed as the beneficiary on your accounts, your estate will go to your ex-spouse, not your kids. It is worthwhile, therefore, to take a few minutes to revisit the issue.

Protect Your Beneficiaries

There is a particularly important reason to designate beneficiaries in retirement accounts. In most cases, an individual designated as a beneficiary can take post-death distributions over his or her remaining life expectancy, providing that person a reliable income. 

If there is no contingent beneficiary on your retirement account, your death benefit will go to your estate. Once in your estate, your death benefit will be taxed and used to pay your debt. If no heir can be found, the state will get to keep your assets. Naming a beneficiary will help mitigate the risks of leaving your assets to unintended individuals or entities.

Seek Professional Advice

Good estate planning helps protect your family and your beneficiaries. Look for a financial services firm that will stress-test your estate to make sure you’re addressing all aspects of your death benefits. The end result is an evolving plan that helps protect your family and friends. 

At Prime Wealth Advisors, we are a full-service retirement planning, tax, estate, and wealth management firm. We can help ensure your heirs are protected. Call 623.77.PRIME or visit our website for more information.